# THE MOST IMPORTANT THING SUMMARY (BY HOWARD MARKS)

## Метаданные

- **Канал:** The Swedish Investor
- **YouTube:** https://www.youtube.com/watch?v=3_5DGymQSUs
- **Источник:** https://ekstraktznaniy.ru/video/21345

## Транскрипт

### Segment 1 (00:00 - 05:00) []

Why does it help you to think about tennis when investing? And will you take the red or blue pill as we reveal some investors' skill, or lack thereof? And speaking of choices, are you absolutely sure you're fishing in the right pond? These are a few of the things we will explore in the next few minutes in this top 5 takeaway summary of the masterpiece: The Most Important Thing, by the legendary investor and self-made billionaire Howard Marks. Let’s dive right in! Takeaway number 1: Fish in the Right Pond When Musk is dancing, and all the Tesla stockholders are dancing with him, and Tesla’s earnings are valued at triple digits, this is probably not the ideal time to buy Tesla shares. as there clearly are very few clouds on the investors' horizon – and the stock is probably priced to perfection which leaves little or no room for positive surprises. Instead, according to Marks, “You tend to get better buys if you select from the list of things sellers are motivated to sell, rather than start with a fixed notion of what you want to own. ” Marks urges us to be picky in our fishing expedition. Don't just join the popular trip; instead, throw your bait where the waters are less crowded and the potential for mispricing is much higher. Okay, Mr. Marks, where are the good fishing spots then? One promising pond is the little-known and not fully understood companies. Think of spin-offs or smaller enterprises flying under the radar. These entities often escape the spotlight, giving investors the chance to uncover hidden gems that haven't yet been fully appreciated by the broader market. Another pond is the one with seemingly outdated or questionable industries, like the slowly dying business of cash transits. Take Loomis, for example, which is a company I keep close track of. While it might not be a headline grabber, such businesses can offer unique opportunities, precisely because many others are quick to dismiss them. Yet another is the pond with of controversial, and “inappropriate”, or scary investments: like oil, war, or gambling-related companies. Is it just me, or do you also have a few of these…? Basically, stocks that display some sort of defect and that forces you to look below the surface, that’s where you can pay little in relation to value and receive a lot of return in relation to risk. If the people setting the asset price are pessimistic, and they don’t see the future of the company ever being good again, then the price will be low relative to it's real value, and that’s something we want to take advantage of. Before we learn valuable lessons from a tavern in World of Warcraft, let’s hear from today’s sponsor, which happens to be me. For 11 years now, I’ve been successfully investing my money in the stock market, and I have managed to continuously beat the index – that top graph is me by the way. Many of you have been interested in knowing exactly how I go about picking my stocks and how I run my portfolio. I figured that instead of telling you, I could show you. So, there’s now a Patreon where you can join me and a lot of others like yourself in a practical, case-by-case, and more private setting. So, for exclusive content and my portfolio, head over to the Patreon page. See you there! Takeaway number 2: Second-Level Thinking As active investors, our goal is to beat the market and earn superior returns. To do this, we either need a lot of luck, or superior insight. Now, I guess you could aim to increase your amount of luck … What you see before you ladies and gentlemen is a curious little potion know as Felix Felicis, but it is more commonly referred to as … Liquid Luck! Yes, miss Granger, Liquid Luck. One sip and you will find that all of your endeavors succeed. … but I’m afraid I will be of no use for that. Me and Howard Marks’ guess is that you better aim for the superior insight, which happens to pretty much be the purpose of this channel... And hey, even if superior insight won’t make you luckier per se, at least other people will end up calling you lucky as you get richer. Developing superior insight is not an easy task. As with anything as profitable as investing, competition is tough – as is natural in a capitalistic society where a lot of money is on the line. Just like you need a superior training regime and disciplined nutrition if you aim for Mr Olympia, to become an above-average investor, you’ll need more perceptive thinking, and this is what Marks calls “Second-Level Thinking”. Marks gives a couple of examples: Where first-level thinkers say: The outlook calls for low growth and rising inflation.

### Segment 2 (05:00 - 10:00) [5:00]

Let’s dump our stock. Second-level thinkers say: The outlook stinks, but everyone else is selling in panic. Buy! And where first-level thinkers say: I think the company’s earnings will fall; sell. Second-level fall less than people expect, and the pleasant surprise will lift the stock; buy. Part of the trouble that you were talking about came because people weren’t thinking enough about the consequences of the consequences. That's a common error! This is true second level thinking. The dynamic duo of Buffett and Munger has another way of putting it – they say that one must always ask “and then what? ”. Everyone everywhere thinks that AI will be the next big thing. And then what? Well, consequences that matter to investors include, among other things, that AI companies will be valued crazy high and that every entrepreneur in town will want to compete for this “golden opportunity”. Now, here’s a question to you to apply some second-level thinking: where is the market unreasonably scared and afraid right now? Do you know about a sector, industry or company where earnings have evaporated and the stocks tanked, but you have a good reason to believe that the trouble is just temporary? Share your thoughts in the comments below! Takeaway number 3: Knowing What You Don’t Know “There are two kinds of forecasters: those who don’t know, and those who don’t know they don’t know. ” Have you ever found yourself at a lively party or dinner with friends, engaging in good and heated discussions about macroeconomic factors such as inflation, interest rates, and wars? Or have you ever been asked by friends what you recommend they do now that the market is so high? In my experience, it’s quite common: and let's face it, for us investment enthusiasts, it can be quite enjoyable to do a bit of speculation! However, Howard Marks cautions against a particular pitfall: taking what should only be a bit of harmless speculation at a party, and allowing this speculation and these forecasts to affect your decisions as an investor. Taking a macroeconomic approach to investing might seem intuitive, but it often leads to a one-way ticket towards underperformance. Why? It’s simply a waste of time. Investors should focus on what’s important and knowable. Some macroeconomics fail to meet the first test of importance, and then you end up endlessly arguing about meaningless stuff just like the baseball scouts from Moneyball. I mean it’s the kind of guy who walks into a room and his dick has already been there for two minutes. He definitely passes the eye-candy test. He’s got the looks, he’s ready to play the part. He just needs to get some playing time. I’m just saying, his girlfriend is a 6. At best. Don’t want to waste your precious time with that, right? Almost all other macro stuff which isn’t unimportant is unknowable. Where interest rates are heading over the next 12 months, for instance, that’s important, if you knew it with certainty you could just short the index or go long with a ton of leverage. However, this stuff is not possible to predict. Some of you might object with “but Michael Burry correctly shorted the market before the financial crisis”. Well, odds are, you are not Michael Burry. And for those few macro investors who correctly forecasted the financial crisis, how many of those correctly forecasted the massive rebound the following years? And of those same people, who correctly forecasted any other major events in the last decades? While we wait for some of those forecasters to show up, why don’t you help a guy out and hit that like button? Cheers! Ignoring the macro environment is not unique for Howard Marks. These gentlemen definitely agrees with him! We’ve worked together now for 54 years and I can’t think of a time when we made a decision on a stock or on a company. where we’ve talked about macro. We don’t know what things are going to look like in any precise way, and naturally, we think that if we don’t know then no one else knows either. So, acknowledge the limits of your predictive capabilities, and instead dive into the nitty-gritty details of specific companies! For example, it’s very important and knowable to understand how a stock is priced and how that compares to other companies with similar characteristics. Or how efficient a company is at generating cashflows. Or how sustainable a competitive advantage is. Spending your time on these sorts of things will increase your hourly stock market salary by a ton!

### Segment 3 (10:00 - 15:00) [10:00]

Takeaway number 4: Blue or Red Pill? I like to advocate that people should always do their own analysis before investing in the stock market. But, let’s face it, some of us do not have the time to do proper digging into individual companies and then it could be a good idea to at least get inspiration from someone who does, or to even have someone manage your money. Who can you trust? Well, a good starter is to make sure that the person you entrust has a great track record. But even that might not be enough. Are you ready for a bit of unsettling truth? This is your last chance. After this there is no turning back. You take the blue pill, the story ends, you wake up in your bed and believe whatever you want to believe. You take the red pill, you stay in wonderland, and I show you just how deep the rabbit hole goes. Consider this: an investor boasting a CAGR of 23% over the past decade versus another at 13%. Who is the superior investor? Before you answer, time for an analogy … Imagine yourself and a few friends going on a skiing trip. You use two different cars to get to the cottage. One car takes 6 hours, the other only 5 hours. Which driver demonstrated superior skills? Both reached the destination, but the 5-hour car got there much faster. Now, let's tie it back to investing. Just as with the skiing trip, the key factor is risk and chance. The results of the 23% CAGR investor and the faster driver's achievement need to be risk and luck adjusted. After all, reaching the destination faster might be impressive, but it could also be the result of some risky maneuvering, and the car might have had a 35% higher risk of crashing and killing everyone in it – thus requiring a larger amount of luck in order to reach the destination. In investing, when you generate performance based on skill, unrelated to general market movements, it’s called "alpha. " But how do you know if an investor is an alpha-generator or the equivalent of a reckless driver? There are at least three telltale signs: Firstly, look at historical portfolio diversification. If it is revealed that the investor has achieved most of his returns from a single company or industry, it can often be based on luck. It’s actually been argued that Peter Lynch’s track record is mathematically superior to Warren Buffett’s thanks to the fact that Lynch held many hundreds of companies, so we can be absolutely certain that his returns didn’t come from just a single fruit company. He got me invested in some kind of … fruit company. And so then I got a call from him saying that we don’t need to worry about money no more. And I said: That’s good. One less thing. I’m obviously not saying that Buffett’s record is luck, but he’s been a more concentrated investor for sure. Secondly, look at leverage. The index investor who leveraged his portfolio by 50% would have had a terrific performance during the last decade if he was able to just sit tight (which wouldn’t have been easy to do, by the way, due to the increased volatility). But there are a couple of times throughout stock market history during which he would have been killed. And, you know, no matter how good your historical performance, you only need to multiply by 0 once to erase a lifetime of success. Third, look at market valuations. This is where tech investors’ track records are kinda sus right now. The true test of alfa for aggressive investors comes when the market is plummeting. If your portfolio crashes much more than the market, odds are your historical returns have been the result of market volatility — you simply surfed a good wave, perhaps without fully understanding it. On the flip side, defensive investors should always do better than the market when it is crashing. And the true test of alfa for the defensive investor is how the portfolio performs in a rising market. Current market valuations favor the track record of aggressive investors, but we may well see the opposite conditions in a couple of years again. So, as you assess your own or others’ track records, consider not just the returns but also the journey. Are you a skilled driver navigating risks with precision, or are you speeding and taking on serious risk without knowing it? Some aggressive investors are still licking their wounds from when the tech bubble burst in 2000. Takeaway number 5: Play to Not Lose "There are bold investors, and there are old investors

### Segment 4 (15:00 - 19:00) [15:00]

but there are no bold old investors" (Howard Marks). Imagine tennis. When you see a couple of pros playing the game, they try to shoot as tough balls for the opponent as they can. They hit hard, to the sides, and with spins. They are in complete control, as long as their opponent hasn’t made it too tough for them. They know that if they do A, B, and C with their body and racquet:, then X, Y, Z will follow. They play to win. In contrast, when amateurs like you and me play, we have the greatest chance of winning if we instead of playing to win, play to not lose. That means we try our best to make the ball go over the net, but no more. I wait until the amateur opponent we play against misses because odds are they will – sooner rather than later. Why is this relevant for investing? Well, have you ever thought about why Warren Buffett, arguably the best investor in the world, hasn’t owned Microsoft, even though he got to know Bill Gates many decades ago? Why Buffett didn’t own any dotcom stocks during the late 90s or why he doesn’t own any AI stocks currently? It’s partly because unlike tennis, where the pro’s know that X, Y, and Z follows A, B, and C; in the game of investing, not even grandmasters can control the outcome. In the game of investing, even grandmasters are subject to a lot of randomness. Even if Buffett does everything right; a company’s management can do something foolish, government can change the rules, an earthquake can hit San Fransisco, there can be disruptive innovation, or what have you. This randomness makes playing for exceptional gains extremely hard, whilst avoiding losses is more dependable – according to Howard Marks, but Buffett would sign on that too. Both offense and defense can make sense in a portfolio, but only playing offense will make you lose the tennis match because there will be too few smashes to counter all the balls in the net. The defensive investor always buys companies in his circle of competence, he avoids frothy valuations and leverage, he uses at least some amount of diversification, and he insists on a margin of safety. Defensive investing can sound tedious, so I’ll let part of Margot Robbie’s morning routine play in the background while I finish up. We value investors, who emphasize defense, will get rich. Given that we live below our means and don’t stop the compounding as it does its thing, we will get rich, because if you avoid losers, the winners will take care of themselves. The only question is when we’ll get rich. The same can’t be said about people that go about investing the way Cathy Wood does. To paraphrase Marks: “invest scared. Worry about the possibility of loss. Worry that there’s something you don’t know, worry that you can make high-quality decisions but still lose money. Doing this will prevent hubris, will keep your guard up, and make you insist on a margin of safety”. Practice makes perfect, so here’s a quick recap! Make sure you fish in the right pond. This is where you pay little in relation to price, and receive a lot of return for risk taken. Don’t wait around for scientists to develop a lucky-potion, develop your second-level thinking instead! Leave the macro-speculation at the World of Warcraft-tavern, it has no place in your investing process. When you evaluate historical performance, make sure that you know how the investor got there. Did you hear me over Margot’s shower? Play defense, and you will get rich. This is actually the second movie created based on Howards Marks’ book The Most Important Thing. Yes, it’s that good. Check out the first video, too! Cheers!